Inflows to Hong Kong ETFs soar as foreigners bet on Chinese stocks

Mon Aug 18, 2014 10:02pm EDT
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By Michelle Chen

HONG KONG (Reuters) - Offshore investors are rallying behind China's undervalued equities by plowing billions of dollars into Hong Kong's exchange-traded funds denominated in the yuan currency.

As a scheme to allow more foreign inflows into Chinese stocks draws near, fund managers are wagering on a sustained rebound for the Shanghai Composite Index .SSEC after a prolonged four-year slump has opened up opportunities to buy on the cheap.

"There were some switchings from markets where fund managers had gained positive returns to places that they thought there could be more opportunities, and China was be one of them," said Jackie Choy, an ETF strategist at researcher Morningstar.

ETFs under the Renminbi Qualified Foreign Institutional Investor (RQFII) posted significant net inflows of 8.2 billion yuan ($1.33 billion) last month, the highest since December 2012 and nearly doubling from June, according to Morningstar data.

The majority of the net inflows went into the CSOP FTSE China A50 ETF 82822.HK2822.HK, which attracted an estimated 6.8 billion yuan, followed by the Bosera FTSE China A50 Index ETF 82832.HK2832.HK, which drew an estimated 2.4 billion yuan.

A strengthening of the Chinese currency, which has gained 2 percent from 18-month lows hit in April this year, and a recovering economy, have also helped draw foreigners to these ETFs, analysts say.

Launched in 2011, RQFII enables financial institutions to use offshore yuan to invest in the mainland's securities markets.

Foreign investors, who cannot directly invest in mainland equities, have eagerly embraced the QFII and RQFII schemes to tap China's onshore market.   Continued...

A trader walks inside the trading hall during afternoon trading at the Hong Kong Stock Exchange April 10, 2014.  REUTERS/Bobby Yip